After being riddled by the recession, Maryland retailers expect to see modest sales increases this year. However, they warn that the fragile improvement could be wrecked by a new health care system that overburdens small retailers and restaurateurs.

"It will be a reasonably decent year for 1994," said Kenneth M. Gassman Jr., a retail analyst for the Richmond stock brokerage firm of Davenport & Co. of Virginia Inc.

He expects that retail sales across the nation will be up 3 percent to 6 percent this year and that Maryland should follow suit.

"I'm not aware of anything that would make [Maryland] better or worse," Mr. Gassman said.

After two years of declines, Maryland's nondurable retail sales turned up last year. Those sales -- which include department store and discount chain sales -- were up 6.7 percent for the first nine months of the year, hitting $17.2 billion, compared with $16.2 billion for the same period in 1992. That came after a 2.7 percent decline in 1992 and a 1.8 percent drop in 1991.

Retailers are a crucial part of the Maryland economy, providing ,, 400,000 jobs, according to Tom Saquella, president of the Maryland Retail Merchants Association.

Maryland merchants expected to finish off the 1993 Christmas season with a moderate 4.5 percent to 5 percent increase, Mr. Saquella said. But unlike the 1992 Christmas boost, which was short lived, the improvement should carry over to the new year, he hopes.

Mr. Saquella expects state retail sales to be up 4 percent to 5 percent this year, supported by declining unemployment, gains in household income, and low interest rates.

But some big retailers, such as Merry-Go-Round Enterprises Inc., may need more of a boost. The 1,450-store clothing chain ended the year reeling from credit problems, with some suppliers refusing to ship spring merchandise.

Retail activity in Southern Maryland -- Charles, Calvert and St. Mary's counties -- also has gotten a boost from the expansion of Washington suburbs, Mr. Saquella said. And many of those suburbanites are federal workers who will receive wage increases of 4 percent to 5 percent next year, adding more steam to retail sales, he said.

Robert J. Mulligan, vice chairman of Woodward and Lothrop Inc., a major department store chain in the Baltimore-Washington area, anticipates that retailers will see a moderate increase in 1994.

"We think there will be some modest growth in 1994," he said, predicting a 4 percent to 6 percent increase at his stores. "The economy will move along, but not at a stage that it would be a banner year," he said.

But the good omens could be swept away if a national health care bill is enacted, requiring all businesses to pay for employee health care, Mr. Saquella said.

"It's going to be a real shock to the industry," he said. It will particularly hurt small retailers who will either have to raise prices or lay off people, Mr. Saquella fears.

And along with small retailers, independent full-service restaurants also would be hurt by mandatory health care costs, said Marsha Harris, executive vice president of the Restaurant Association of Maryland.

"It really dwarfs the other concerns," she said. Independent full-service restaurants -- which make up about half of the organization's 2,200 members -- are among the most labor-intensive businesses.

Whereas financial services companies have revenues of $900,000 per employee and even grocery stores take in $160,000 for each worker, full-service restaurants generate only $47,300 annually for each employee, she said.

This provides little leeway for increased costs, Ms. Harris said. And while the chains may be able to absorb the cost, the stand-alone restaurants will suffer.

Discounting the unknown of health reform, Ms. Harris expects 1994 to be a better year after four years of the doldrums. "Growth definitely, but slow growth," she said.

The National Restaurant Association, the parent organization to RAM, predicts that restaurant sales in Maryland will grow by 3.9 percent in 1994, to $3.7 billion.